Mark P. Dangelo: The Demise of the Contact Banker
Mark P. Dangelo is Chief Innovation Consultant with BlackFin Group, Laguna Hills, Calif., responsible for leading and managing innovation-led business transformation and technology projects and innovation-based advisory services. He is also president of MPD Organizations LLC and an adjunct professor of graduate studies in innovation and entrepreneurship at John Carroll University. He is the author of four innovation books and numerous articles and a regular contributor to MBA NewsLink. He can be reached at firstname.lastname@example.org or at 440/725-9402.
The start of summer is here, and this year and moving forward, we face significant uncertainty across the financial services and banking organizations. Moreover, this uncertainty and chaos of dealing with a global health crisis has not been anticipated, nor robustly prepared for with contingency plans for over a century. Just as in the aftermath of the Great Recession, we sought a “new normal”—a phrase coined by many industry leaders anticipating a return to customary operating guidelines. Today, many media personnel and industry leaders are labeling their challenges and opportunities as the “next normal.”
In examining the decade of subsequent recovery, we can agree that it was anything but “normal” with some pre-Great Recession markets segments never recovering (e.g., private #MBS securitizations, origination volumes). Additionally, and for the past 25 years, historical FDIC trends have continued unabated with an industry average of 240 banks lost each year —standing now at just over 5,000 institutions. Since the GR, domestic asset concentration of the top nine FSBOs was under 15% prior to the Great Recession—now it nears 50%.
The big have gotten huge, and banking generally has been turned into, due to compliance and political interference, regulated public utilities delivering commodity offerings wrapped in advanced technological wrappers. It once again begs the question asked in a recent MBA series, “Are Bankers Necessary?”
As writers, researchers and industry personnel, what can we say that will provide a clear path forward? What can be adapted, augmented or anticipated, which would make the uncertainty less ominous and opaque? We are facing a health-induced economic event that has not been experienced since 1918, and even then, our economic models were concentrated on #GDP driven by manufacturing (over 50% in the 1920s), not services (now more than 80% of GDP). Moreover, in publications by the Federal Reserve, there is a sentiment along with underlying historical data that points to years of economic rebalancing—not months. It reminds me of the staircases in Harry Potter that dropped you off on a floor you had no idea what was waiting for you. Perhaps it is Fluffy, the three-headed dog?
We look for normalcy using extrapolations to provide guidance—but are we just wishing that is the case? We hope for “innovative thinking” that will deliver us from the melee, but if everyone across FSBOs are adopting copycat strategies and solution sets, is that really innovation demanded by behavioral changing consumers? And, will these behavioral and usage adaptations to the health crisis and rising social injustice protests favor those brands who built their business models on direct contact with the consumer, or will competitor successes now depend on approaches that are contactless?
The Origins of the Contactless Banking Era—Many Pieces
Back around 2000, the contactless banker model was tried, adjusted and retried, but its share of the market was limited to “technology junkies” who liked the premise that FSBO transactions should be comprehensively digital (e.g., @EggBanking). For many, their efforts resulted in M&As, assets sales or liquidation. In the ensuing two decades, these pioneering users became advocates with their methods transferred or cloned by competitors.
Today consumers transmit their data, their money, and their payments using secure electronic connections. They check balances, photocopy checks, apply for loans, trade stocks, buy bonds, purchase gold, research alternatives, and even pay for college all on their smartphones using the latest in secure cellular networks. FSBO’s across all financial supply chain segments have digitally automated processes using #RPA, they have accumulated data internally and externally on nearly all aspects of a consumer’s life, while developing AI and machine intelligence to mine information for opportunities and liabilities. Indeed, it is a brave new world with increasingly capable intelligent offerings.
Those who started this contactless banker model with a vision of a comprehensive digital delivery, likely thought if the back-office was digitized, then efficiencies would lead to greater margins, improved quality, and higher profitability. Another data point was with the launch of #Bitcoin more than a decade ago. It was thought highly improbable that it would usher in hundreds of additional “coins” (i.e., cryptocurrencies) all having core components of software, hardware, security, and users (e.g., miners). Bitcoin was after all, a dark web payment method preferred by illicit operators.
With these cryptocurrencies came a robust use case for the now familiar blockchain (i.e., ledgers), and additional “spoof-proof” advanced cryptography, which is compartmentalized and layered to reduce burdens and risks. Born in mathematics and underpinned by computer sciences, a decade of digitization of “currencies” is providing one of the last architectural foundations for another round of financial innovation. As standardized “e” solutions for transactions expand for signing, loan documents, and even notarization, contactless delivery is becoming the norm for all types of residential and commercial loans. Do these digital artifacts represent the “next normal” for lenders and securitizing agencies as part of the due diligence “bundled” with every loan?
As #ATMs evolved with the aid of synthetic intelligences (e.g., #AI, #VR, #MI) into full-service #POSs their principles of operation pushed forward, and the rise of the now familiar term Fintech was conceived with point-based and enterprise solution sets transforming data, its volume, usage capabilities, and predictive (i.e., anticipatory) consumer responses. With cloud provisioning systems (e.g., @Amazon, @Microsoft) now commonplace and apps as ubiquitous as #wi-fi networks, the foundational components needed to rudimentarily cope with a global health crisis were in place—albeit, not used to the extent of their potential nor pushed to their breaking points. It was analogous to the transistor which pushed us into the integrated circuits, there had to be a demand for innovation to flourish and come together with layers of other inventions to find widespread efficacy.
Fast forward to March 2020, the rise of online banking transactions has risen to more than 90%, from an average of around 10% prior to then. The reliance on digital data, automated processes and e-delivery of products and services now seems to define many FSBO corporate brands. Our customers are loyal, or so it can be deduced, if the innovation progression meets a virus foe that has ripped open deficiencies of strategy, contingencies, and risk mitigation. As industry leaders we anticipated terrorism (i.e., a short-lived interruption honed over two decades), but not a lingering and insidious virus. Yes, we were caught woefully unprepared and the fallout caused by implications linked to emergency-driven decrees and rationale. Yet, will these assumptions hold? Will the trends continue? Will the chaos and lockdowns return?
“We do not anticipate a full return to pre-COVID-19 levels. We do anticipate a drop off in use of some of the technology being made available to borrowers after the crisis comes to an end. I also believe that this crisis has pushed the adoption of some technology and processes that had previously been slow to be adopted such as the hybrid and full e-closing process” says Joe DeDominicis, CFO/CTO of NRL Mortgage. “We are hopeful that even after the crisis that these processes will continue to be adopted and grow in use. However, I am not sure the same will be true for POS use on our retail channel.”
But consumers, as we have learned, are resilient. Bankers we know can adapt, as they have over the past 15 years with a dwindling control of consumers financial information, which now stands at just more than 40% of all financial data created (and shrinking). Technological innovation in this era of the Fourth Industrial Revolution (#4IR, 2016-present) is forcing bankers to grapple with operational transformations not in years, but in weeks and months as non-competitive innovations force change into their industry delivery plans. The days of brands being able to ride out the latest “fad” due to their size has passed as those that are huge will be under constant regulatory oversight resulting in offerings that are like “electricity”—can the consumer really tell the functional difference besides the price? Small firms seeking to emulate the large ones will likely be the fastest to fall.
Go Forward or Turn Back?
What does your future model of delivering products and services to customers involve (e.g., iteration, orchestration, layering) when it comes to innovation accessibility, technology (e.g., apps, 5G networks, data manipulations), and system adaptability initiatives? Do you believe that your planning approaches and delivery excellence is sufficient? Do the metrics and partner offerings follow patterns of competitive solutions, or has the breadth of innovation and the pace of advancement left voids or created missed opportunities?
The short answer, like educators preparing for virtual classrooms, is anticipating a consumer accepting repurposed 2019 banking solutions in a health-scared 2020 environment is unlikely. It is not difficult to predict that online banking volumes will drop from the 90%–but they unlikely will retreat to the 10% prior to March. Moreover, many banking leadership teams anticipated that the consumer resistance would prohibit high levels of online and app adoption until well after 2025 especially with the demographics more than 45 years old. The health crisis along with very recent social unrest, may ensure that virtual banking, like @Zoom, will remain a key solution set for all FSBOs.
What these events signify by the implications of their evolving realities is that the wave of contactless banker solutions will require greater forethought along with layering of innovations to meet the demands. Translation, shorter timeframes, robust deliveries, iterative executions and layers upon layers of compartmentalized components (to deal with technology innovation).
As FSBOs, technologists, and consultants, we now have proof that high levels of virtual delivery can be achieved. We have a better understanding of the impacts to future budgets along with the improvement needs assessed against the reality of how consumers used our services, valued our products, and interacted virtually with remote personnel. We have data in a crunched timeframe and scale previously unavailable (except with unproven forecast modeling and proactive simulations).
We now, in the case of lending, accept the value of data standards and how they can be the launching point for more data inclusions along with integration of non-financial source information. We understand the security and privacy demands when closing deals, prospecting, or even the interactions with real estate agents, inspectors, builders, property management, secondary markets, and yes, government regulators to name but a few. 2020 if nothing else will be a year that propels visionary contactless banking approaches, and with certainty, punishes those who fail to adopt and adapt to consumer demands imposed on their lives.
Think about this, this year alone has brought more change in consumer behaviors than decades prior. It has altered our “innovative thinking” to reflect that incremental change is “old normal” good, but for the “next normal” it seems quaint. Current events and the promise of what might come are already demonstrating vast changes to our outsourcing arrangements, new and hard-to-find skill sets both as FTEs and with contractors, educational and training approaches that lack efficacy when moved into an asynchronous learning platforms, and organizational cultures that have become more fragmented along splits favoring rapid transformation using innovation and those seeking (as we did during the Great Recession), a return to BAU (a modified business as usual).
Like Vikings of lore, will our organization burn the old ways at the shorelines, or keep the boats afloat hoping for a quick retreat if we fail with innovative thinking? Will the lure of technology for the sake of “doing something cool” create situations, as noted in the FSBO book Beyond the Technology Traps, a string of failed or marginal solutions as our operating environment punishes those who outdistance commoditized thinking? Will we move to accept contactless banking as a major part of our offerings to meet demographic and social needs (e.g., age usage, wealth gaps, and social justice) or will be become one of those 240 institutions who “had a good run” every year?
Joe DeDominicis or NRL Mortgage continues, “We were already moving to a new LOS and POS that would ideally allow borrowers to do business when and how they would like to do business…I do believe as time passes retail business with a borrower coming into the branch to complete an application will disappear. So, for this channel to survive long term it would have to reinvent the way it does business. I think more and more borrowers are wanting to do business on-line and not have to physically be in a specific location to do a mortgage application or speak to someone about a mortgage.”
Today’s Catalyst: Tomorrow’s BAU
A key distinction between the banking pioneers of prior decades, is that the base of consumers advocating for digital delivery was small (< 2%). Today, to succeed and to anticipate competitive reactions, innovative digital delivery is an unspoken rationale with constantly evolving implications. It took two decades to go from 2% to 10% of users regularly utilizing virtual banking. In 2020, it took three months to go from 10% to more than 90%.
How many banking leadership teams believed just a few years back that the as a new decade approaches, China would seek to dominate currency markets and be piloting a digital sovereign currency (i.e., #CBDC, central bank digital currency) as the United States is occupied with debt issuance, payments, and politics? Will the mainstreaming of CBDCs be yet another catalyst that marginalizes non-innovation leading firms as 2020 turns into 2021? Will banking become increasingly contactless as the money itself used to conduct transactions becomes just ones and zeros?
And, in the world of contactless banking, do you have an in-depth assessment of where your skill depth resides? As world events alter banking offerings, what skills will be the most in demand to ensure customer contact and solution provisioning (i.e., systems)? What skills will be the hardest to find for your current and future innovation initiatives? As you examine what is needed and compare that against the skills already obtained, where do you see the gaps, and how do you anticipate achieving innovation in the face of uncertainties and skill voids?
To clear up a point of confusion caused by context assumptions, all FSBOs–large, medium, and small—FSBOs will be impacted. The transformation ability to take advantage of contactless banking will be a window that may only be 6 to 12 months wide. This duration will be likely defined by those institutions that have or partner to integrate the skills needed for contactless innovation delivery. It should be anticipated that the catalysts itemized above will spur significant M&A actions as enterprises lacking capabilities will be forced to join with those who have them. Being an average innovation delivery institution in an age of contactless banking will not be profitable—and may not be survivable.
Jason Sasena, Chief Lending Officer with Westerra Credit Union, states, “Acceptance of average digital experiences will diminish sharply. For those undergoing a digital transformation, this will be an opportunity to step back and challenge their roadmap for desired outcomes and timelines…The more virtual, the more data. There is a higher dependence on a single source of clean data that feeds campaigns, digital experiences and is consistent at every consumer touchpoint, especially in the hands of the contact center.” Jason also advocates that “If the digital experience is flawless and the data is clean, then the person answering the phone should be highly skilled to assist accurately the first time. There is an opportunity to look at process and train up team members to assist beyond traditional silos that may span beyond service, sales and into technical questions on how to use the digital platforms.”
Whatever doubts surrounding contactless banking prior to March have been pushed to the edges. FSBO leadership can no longer dismiss the value of contactless banking especially in the face of future health events, global terrorism, and yes, social unrest. While the cost of delivery may have been prohibitive for some as the rush to adapt trumped expenses, the old ways of restricting innovation and customer defined banking solutions has been shattered. To participate in consumer’s financial needs, FSBOs cannot hope for a return to traditional processes, access, and branch models. Digitalization, comprehensive implementation across all forms of the financial supply chains, has found the defining year to usher in contactless banking. The next year will create new FSBO winners and losers. Where will you be within this “next” normal?
(Views expressed in this article do not necessarily reflect policy of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA NewsLink welcomes your submissions. Inquiries can be sent to Mike Sorohan, editor, at email@example.com; or Michael Tucker, editorial manager, at firstname.lastname@example.org.)